A lot has been written about why tech startups succeed, but founders are less forthcoming about why tech startups fail. Let’s explore some common pitfalls of startup companies and how you can avoid them.
Statistically speaking, only about 10% of startups survive. That number is both intimidating and scary.
So, tech startup entrepreneurs need to learn strategies that can help their businesses grow. But, it is just as important for entrepreneurs to be aware of the dangers that lie ahead as it pays to know about the potential consequences. Let’s dive deeper.
Why Tech Startups Fail: 6 Scenarios to Avoid
Your greatest competition as a tech startup is time. Technology is volatile, and this aspect puts pressure on many businesses to deploy to market faster than their competition.
But that’s the name of the game. It’s up to startup leaders to navigate the waters and avoid the threats and wrong turns that lie ahead. Below are the top reasons why tech startups fail.
#1 They’re not solving an actual problem
One of the most common reasons why tech startups fail is because they are simply not solving a problem that people care about. This might seem like an obvious point, but it is one that is often overlooked in the excitement of coming up with a new idea and starting a business. If you want your startup to succeed, you need to make sure you are solving a real problem for real people.
How do you do this? First, you have to make sure that there is an existing market for your business idea. If a need for it exists (and people are willing to pay for the solution), you may have a viable opportunity. The next step would be strategizing how you will be able to make your product stand out. And this brings us to our next point.
Watch: Early-stage Startup Lessons
#2 There is no value in their product
Another reason why tech startups fail is that they do not have a clear value proposition. In other words, they are not offering something unique or special that sets them apart from the competition. Without a strong value proposition, attracting customers and growing your business will be difficult.
One way to ensure that your product has value is to gather customer feedback. What is it that they want? Is there a common pain point that your competitors overlooked? Are there other features that would make your product more valuable?
By answering these questions, you will be one step closer to achieving product-market fit. Without it, you’re dead in the water.
#3 Their business model is not sustainable
A third reason why tech startups fail is that they do not have a sustainable business model. How does this happen? This happens when tech startups are not generating enough revenue to cover their costs and make a profit. Without a sustainable business model, it is very difficult to scale your startup and make it successful in the long term.
For example, a tech startup hires an onsite, in-house software development team too soon. This is good if the business can sustain operational expenditures in the long term. But considering the high developer rates in the United States, impacted by the talent shortage, scaling too soon is expensive for startups. A cost-effective solution such as building an offshore software development team could be just what a startup needs.
#4 They get lost in their plans
Tech startups should make a business plan and stick to it (within reason). One of the main reasons why tech startups fail is that they cannot execute their plans effectively.
Starting a tech business can be an overwhelming experience, especially when you’re new to the scene or you’re a non-technical founder. When this happens, it’s easy to get lost and fail to follow your plans. You might not have the right team in place. Or you may be trying to do too many things at once without focus. Whatever the reason, if you cannot execute your plans effectively, your ship will likely sink.
#5 They miss market signals and fail to pivot
I know . . . We just said sticking to your plan is important to your business’s survival. Entrepreneurs start businesses based on the best information available at the time, but they don’t know what they don’t know. If users, investors, advisors, and potential customers are giving similar feedback, listen for the echo.
A founder who rigidly, stubbornly sticks to a plan that’s not working isn’t going to have a business for long. Don’t let your ego keep you on the wrong path simply because it was your plan.
#6 They have a high burn rate
For most startups, as long as you’ve got cash in the bank, you live to fight another day. When a startup runs out of money, it’s game over. What are some scenarios that increase your burn rate?
One could be that the company underestimates how much money it would need to get started. If you haven’t launched a similar business before, you should double or triple your projections for the time and expense of getting off the ground. Can you survive under those conditions?
Another reason could be that they are not able to raise enough funding from investors. And finally, the startup may be overspending and scaling fast. It’s important to plan every cent that goes into the business.
#7 Their marketing plans flop
A great product value and competitive edge build a strong foundation for any tech startup. Even so, many great products have failed due to ineffective marketing.
Your startup’s marketing strategy is every bit as important as the product itself. Some campaigns fail because they are trying to reach too many people with their message or because they are not using the proper channels to reach their target audience. Without a good marketing strategy, getting people interested in your startup will be very difficult.
Avoid Startup Risks With Full Scale
Following actionable techniques to grow your startup and being wary of the pitfalls of running a startup go hand in hand. It’s always wiser to look at both sides of the spectrum. Doing so increases your chances of being part of the 10% that survive the startup phase.
Full Scale is a one-stop tech startup solution for software development services. We are a software development company that provides development services through our offshore arm in the Philippines.
With excellence in guiding tech startups to success, we made the list of Inc. 5000’s fastest-growing private companies in the United States. Our founders, Matt DeCoursey and Matt Watson, also established Startup Hustle, a podcast dedicated to entrepreneurs by entrepreneurs. This top-ranked podcast talks about all things startups and tech. Grow with Full Scale today!